Abenomics rally: bubble or trend?

March 13, 2013

“Abenomics” is the buzzword in Japan these days — it refers to Prime Minister Shinzo Abe’s aggressive reflationary fiscal and monetary policies that triggered the yen’s 10 percent decline against the dollar and 17 percent rally in Tokyo stocks this year.

So it’s no wonder that the Japanese mutual fund market, the second largest in Asia-Pacific, enjoyed the largest monthly inflows in almost six years last month, raking in as much as $11 billion.

With all that new money coming in, will you be late to the game if you haven’t gone in already?

French fund manager Carmignac Gestion does not think so.

Carmignac, whose fund already has a 10 percent allocation to Japanese stocks, says investors’ general loss of interest in Japan since the 1990s has resulted in very low valuations. It estimates Japan’s price-to-book ratio is less than 0.7 times.

So it would seem that the equity market’s 20 percent rise over three months has not exhausted investment opportunities in Japan, provided that currency risk is fully hedged.

Morgan Stanley, however, has this health warning:

PM Abe has started with all policy guns blazing. For 2014, in order to keep growth going and end deflation, he will need to reload. Micro reform policies are his only new bullets. Market stability depends on him firing more, larger calibre ones.



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